Housing Benefit: Great Britain in Comparative Perspective
Kemp, Peter A., Public Finance and Management
Britain has a relatively unusual housing allowance scheme compared with those in many other countries. It is also one that has experienced many problems and attracted much criticism. The Labour Government is currently introducing a radical reform of the scheme, which aims to tackle its many problems. The purpose of this article is to consider the British scheme and its planned replacement in comparative perspective. It is argued that, although the new scheme will tackle some of the design faults of the current scheme, other difficulties will be left untouched and important problems with the administration of housing benefit will therefore remain. The new scheme will also be unusual by comparison with housing allowances in other countries, but in a different way from the scheme it is due to replace.
Along with many other advanced welfare states, Britain has a relatively mature income-related housing allowance scheme. Known as 'housing benefit', it is relatively unusual by international standards (Kemp, 1994). It is also widely recognized within Britain as having many problems that need attention. With these difficulties in mind, the Labour Government is phasing in a radical reform of housing benefit (DWP, 2002). It is currently testing the proposed new scheme, for private tenants only, in a small number of 'pathfinder' local authority areas, with a view to rolling it out nationally for all private tenants on housing benefit in about 2007. A similar reform is likely to be introduced for social housing tenants in due course, but probably modified to take account of the different rent-setting and tenancy allocation mechanisms in that part of the housing market.
The aim of this paper is to examine in comparative perspective the current housing benefit scheme and its planned replacement. The first main section of the article outlines some of the key characteristics of housing allowance schemes. The second highlights several respects in which the British scheme is relatively unusual. The third section discusses some of the main problems of the current housing benefit scheme. The fourth examines the reformed scheme and identifies some issues that would need to be addressed before it could be rolled out to social rented housing. The fifth section considers whether the new local housing allowance moves incomerelated housing support in Britain closer to the schemes that exist in other countries. The final section draws some conclusions.
Housing allowance design
The design of housing allowances varies from one country to another (among those that have them). In general, housing allowance entitlement is a function of three key variables (Kemp, 2000a):
1. resources (income and assets)
2. household composition
3. housing expenditure
The precise definition of each of these three variables varies from one country to another. For example, resources is usually defined to mean income (and in some cases, assets) but this can be gross income, taxable income, or net income (i.e. income after tax and social security contributions). It can refer to current income or income in a previous tax year. Household type often refers simply to household size, but household composition is taken into account in some countries as well. Housing expenditure may refer both to rent and to mortgage payments, but sometimes only the former. Both rent and mortgage payments may be defined in more or less generous ways. Allowances are most commonly calculated on households' actual housing expenditure, but may be based on a notional or standard amount for the area. As Gibb (1995) points out, the former is as an ex post housing allowance and the latter an ex ante allowance.
These three variables are then combined into a formula to determine each household's allowance entitlement. Most housing allowance formulae are variants of the 'housing gap' approach (see Howenstine, 1986) in which entitlement is defined as a proportion of the difference - the gap - between eligible housing expenditure and a minimum contribution that the household must make. …